In the Keynesian model, total spending or aggregate expenditures may be
represented algebraically by the equation that we first introduced in lesson one.
When we discussed the use of the flow of product or expenditures
method, to calculate income or gross domestic product.
Specifically aggregate expenditures AE equals consumption plus
investment plus government expenditures plus net exports.
And the aggregate expenditures curve is simply the vertical
summation of these four components. This figure
illustrates how these aggregate expenditures appear as
a curve in the basic Keynesian multiplier model.
In the figure, expenditures are measured on the vertical axis.
And real income, or GDP, is measured on the horizontal axis.
Note that the aggregate expenditures curve slopes upward.
But, has a flatter slope than the 45 degree line that represents
the aggregate production curve. Note also that the aggregate
expenditures curve, intersects the vertical axis at a level above zero.
Taken literally, this means that, even if income is zero,
people will still spend a certain amount of money on consumption.
Such expenditures are called autonomous
consumption, because they happen independently
of the level of income.